Tuesday, February 18, 2014

Pros & Cons of Purchasing a Real Estate Owned (REO) Property

REO - Court documents taped to the door

This article helps to uncover some of the advantages and disadvantages for a buyer who is considering or looking to purchase a Real Estate Owned Property (REOs), one of the many types of sellers in the Real Estate Market.

What is an REO?

REO is short for 'Real Estate Owned' - usually owned by the lender or a bank - after an UNSUCCESSFUL sale at a foreclosure auction. Foreclosure auctions usually take place on the courthouse steps in the county where the property is located, but can also be held in convention centers or even at the property in foreclosure.

If the property is real estate owned, the bank will go through the process of trying to sell the property on its own.

Things to Know When Purchasing an REO

When you buy a bank owned home, you're on your own. The history of the home is usually unknown not to mention how long it has set vacant. An REO property can be any age or style and in virtually any neighborhood. Majority of REO foreclosed properties require work to rehabilitate or repair problems. A former property owner's unwilling or unhappy departure coupled with a long period of vacancy could lead to unsuspecting or unnoticed property damage. 

REO court docs taped to the front door

Some Advantages of Buying a Bank Owned Property (REO)

→ NO emotional attachment to the property, in fact banks have been known to offer low-interest financing and reduced closing costs to serious buyers
→ Typically all liens or claims against the property are expunged
→ A Cloud on the title (2nd mortgage, mechanics liens, taxes or other liens) are usually wiped out
→ A skilled negotiator can get the loss mitigation department to discount the price to a fraction of its market value
→ Buying REOs could be less risky with less competition
→ Bank owned properties are usually vacant because the eviction process has already been taken care of

Some Disadvantages of Buying a Bank Owned Property (REO)

→ REO properties are bought 'AS IS'. No warranties are given.
→ The home may have set vacant for a very long time which could lead to vandalism
→ REOs could be in poor condition, yards and upkeep on the property will most likely not be in tip top shape
→ The Asset Manager may be difficult to reach, making for a long and drawn out process
→ Banks sometimes have a time period before considering offers, in an effort to create a multiple offer situation and drive up the price
→ Typically no repairs will be made, other than major safety or code violations
→ Title and Escrow is generally handled with an out of area company
→ Often times past due water and sewer accounts are not checked

Tips for Purchasing an REO

Budget Appropriately - Most REO homes are sold "as is" condition, so its important to consider the costs of renovation and/or repair and the time it will take to complete them. 

Have a Home Inspection - this is an out of pocket expense to you the buyer. Be sure to have the home inspected. This is an important step for any Real Estate transaction, but even more so for REO homes since they may have been vacant for quite some time. 

Be Financially Ready - as with any Real Estate transaction, if you are a serious buyer then you will already be pre-approved for financing. Especially with REOs you need to be able to act quickly when you see a home that you would like to buy. The sooner you can make the offer the better, many investors are in the business of buying REOs, often paying cash and able to move fast in purchasing the property.

Be Educated About the Current Market - It is more important than ever that your offer price is comparable with other homes in the neighborhood. Yes, you are looking for a deal and most banks can and will negotiate. However, you must remember the goal even with bank owned homes is to be at or near the current fair market value. Your Real Estate Agent should be able to guide you through this process.

Have you been thinking of buying a Real Estate Owned Property?

Are you an Investor looking for Agent representation to buy or list a Real Estate Owned Property?

Contact us today or schedule your Buyer's Consultation {HERE}

Are you curious what a mortgage payment would look like if you were to invest in an REO property? Zillow has a great mortgage calculator, just fill in your numbers and it will do the calculations for you!
Check it out:

This article was brought to you by our Dream Team Member Teresa Schumacher with Berkshire Hathaway Home Services at the La Jolla office.

Teresa Schumacher
PH: 619-995-2132